At Forward Partners we want to back founders who will go all the way with their companies. That’s partly because we work closely with them and they become our friends, and partly because when a founder leaves a business it’s a horrible wrench from which it’s tough to recover, not least because the company has usually gone through an extended difficult period before the departure.
The above chart looks at what happens when the founder doesn’t go all the way. It’s the output of research done by US VCs which compared exits of companies with founder CEOs to exits of companies with professional CEOs. It’s a log chart, which makes it slightly difficult to read, but companies want their exit blob to be high and to the left – big valuation with little capital raised.
As you can see the red dots (founder CEO at exit) and blue dots (professional CEO at exit) are pretty evenly spread and surprisingly the main conclusion is that it doesn’t make much difference whether the founder remains as CEO at exit.
When you split IPOs and M&A then there is a difference. Founder CEOs do much better for IPOs and professional CEOs do slightly better for M&A. Because the biggest winners drive VC returns the authors conclude that founder CEOs are best. I prefer that conclusion from an emotional perspective, but looking at the data I think it’s a bit marginal.